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Dow Jones Industrial Average

What does it mean when the Dow goes down in points?


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October 10, 2008 2:40AM

(very simplified answer to a complex area)

The Dow indices and others represent valuation of a set basket of company stocks. Hypothetically, is a company's worth were entirely in its public stock shares, and the company had 10000 shares in the public domain priced at $100 per share, the company's perceived value is 10000*100 or $1,000,000 (a million dollars).

As with other commodities, when many wish to sell but few wish to buy, the selling price see downward pressure, and vice versa.

So for a down day, pressure was being seen in the sell direction, theoretically indicating less confidence in the product for any number of possible reasons.

So, during such a sell off, as the price paid (effectively for representative pieces of companies) drops, the value of those companies is diminished.

The general hope is that with increases in worker productivity and sales, a company's net worth will increase in the long run, on average. This is the pattern seen in the stock market indices over the past decades.